HNRK Coverage Corner

Today at the Coverage Corner, we look at a decision of the New York Appellate Division First Department on a D&O insurance coverage issue that is near and dear to my heart:  the treatment of “related claims,” in this case under a prior acts exclusion.  I have successfully litigated this issue in New York, written about it on this blog (see here, here, and here), and earlier this year moderated a panel at the ABA’s Insurance Coverage Litigation Committee meeting, entitled Déjà Sued:  Coverage Pitfalls and Possibilities for Related Claims Under Claims-Made Liability Policies.

In Certain Underwriters at Lloyds v. Nu Ride Inc., Case No. 2025-06184, Nu Ride, the insured, purchased a claims-made D&O policy with a Retroactive Date Exclusion that barred coverage for “any claim that arose out of wrongful acts occurring before the policy’s effective date.”  The provision further barred coverage for claims arising from wrongful acts occurring after the policy’s effect date if those otherwise covered acts “constitute interrelated wrongful acts or have a common nexus with acts occurring before the policy date.”

Nu Ride faced “a series of underlying actions filed after the policy was issued” in which “multiple parties asserted causes of action against [Nu Ride] and certain of its directors and officers, largely premised on alleged misrepresentations made regarding the status of orders for defendant’s vehicles.”  The complaints incorporated misstatements on that topic that were made both before and after the effective date of the policy.  However, the complaints “also alleged certain wrongful acts that necessarily took place after the policy was issued,” including “claims involving insider trading,” and “actions or statements that were made during the policy period and were separate from the statements about orders.”

The insurer denied coverage under the Retroactive Date Exclusion and commenced a declaratory judgment action.  Justice Crane of the New York County Commercial Division granted the insurer’s motion for summary judgment, finding that the Retroactive Date Exclusion barred all coverage for the underlying lawsuits.  Under Justice Crane’s interpretation of the caselaw interpreting prior act exclusions, it was not proper to “parse the allegations” in the complaint “into pieces.” Therefore, because the complaints incorporated allegations about conduct prior to the Retroactive Date, coverage was barred entirely.

In a decision issued on June 9, 2026, the Appellate Division, First Department reversed, holding:

 [T]he court must review the underlying pleadings on a claim-by-claim basis to assess which allegations trigger the exclusion and, consequently, which causes of action, if any may remain.

 A prior acts exclusion such as the one involved in this action may warrant a complete denial of coverage if all the causes of action arise out of or necessarily rely upon excluded acts that took place before the commencement date.  But even where many of the alleged acts may fall within the exclusion, the insurer may obtain summary judgment only if it establishes that all the otherwise covered causes of action cannot exist but for the excluded acts.

Although the insurer had “identified acts alleged in the underlying complaints and in the SEC investigation that potentially fall within the exclusion,” the Appellate Division found that the complaints also “contain causes of action that may be viable even in the absence of the excluded acts,” and therefore “defendants were entitled to their defense costs.”  The court further concluded that Nu Ride was entitled to defense costs for an SEC subpoena issued to an officer, as nothing in the subpoena “stated that it was limited to conduct occurring before the policy’s inception.”  Finally, the Court determined that the insurer had properly disclaimed coverage for the corporation (as opposed to its executives) for the SEC document subpoenas.  “[B]ased on the language of the policy” coverage for the company  (“Side C” coverage to use the D&O lingo) was not triggered because the subpoenas were directed only to the company and not “Insured Persons and the Company.”

The First Department’s clarification that a prior acts exclusion must be evaluated on a “claim-by-claim basis” is a big win for policyholders.  Given the narrow construction that must be applied to policy exclusions under New York law, it is appropriate that an insurer can’t avoid coverage for an entire action simply because one of the claims concerns conduct pre-dating the policy’s retroactive date.  The Nu Ride decision is also consistent with a prior First Department ruling that insurers may not “enmesh otherwise distinct claims” merely by alleging that separate “transactions were part of a larger scheme.”  Alvarez v. XL Specialty Ins. Co., 202 A.D.3d 566, 567 (1st Dep’t 2022); see also Home Ins. Co. of Ill. (N.H.) v. Spectrum Information Techs., 930 F. Supp. 825, 851 (E.D.N.Y. 1996) (“bald allegations” of a common “conspiracy are insufficient to enmesh otherwise distinct claims”).